UMC cuts spending on 200mm, leaves 300mm alone

TAIPEI, Taiwan  A cautious customer outlook is prompting foundry United Microelectronics Corp. to reel in capital spending targeted at 200mm wafer capacity expansion, bringing its total capex budget down to $1.3 billion instead of the previously forecasted $1.6 billion.

Rival foundry Taiwan Semiconductor Manufacturing Co. did the same last week, cutting at least $500 million from its original budget of $2.5 billion. But the company also said it would slow the pace of its 300mm wafer ramp, sending chills through an already downtrodden equipment market.

The silver lining to UMC's decision is that it will leave its 300mm program on schedule. UMC "remains committed to spend in full the amounts originally budgeted for Fab12A (300mm wafer) capacity expansion and 130-nanometer copper modules," the company said. The cuts will impact capacity expansion plans in eight-inch wafer capacity for Fab 8F.

The foundry released it second quarter earnings Tuesday, which included news of the cuts. UMC said its balance sheets improved in the second quarter, as demand for .18-micron and below grew to 23 percent of revenues from 15 percent in the first quarter, and helped the company return to operating profitability.

The company posted net sales of $554 million, a 23.8 percent increase over the same period last year and a 52.8 percent quarter-on-quarter increase. Profits hit $133 million, contrasted with $6 million in the first quarter and a $55 million loss a year ago.

"Strong demand growth from our customers, in particular from the consumer and communication sectors, was the main driver behind our performance for the quarter," said John Hsuan, UMC Vice Chairman & CEO.

"We expect to see further market share expansion into coming quarters as several indicators already point to stronger IDM outsourcing in second half of this year and the foreseeable future," he said.

UMC's fabs hit 72 percent utilization in the second quarter, compared to 50 percent during the first three months of the year. Capacity equaled 649 thousand eight-inch equivalent wafers. That will slightly decline this quarter, to about 641 thousand wafers, as UMC makes adjustments to phase in copper production across more lines.

Despite the capacity decline, the foundry will still have plenty to handle floundering demand. Wafer shipments for the third quarter are expected to decline by approximately 5 percent, the company said. To balance that, ASPs are expected to rise 10 percent sequentially because of a better product and technology mix. Thus the company predicts operating income should show sequential growth.